BRAZIL-I'm back!!

What’s to discuss?

First of all, I hope your year-end holidays were enjoyable and you got some rest. Tomorrow it’s back to the grindstone for most (at least until Carnaval).

Today’s Estado de São Paulo offered the views of nine economists and/or pundits on the issue of emerging from the current crisis. All are worthy of a good read.

Perhaps I am being excessively simplistic, but it seems to me that the easiest way out of the crisis is just to do the “right things”. One of the experts, former Central Bank President, Affonso Celso Pastore summarized the situation neatly in one sentence: “The disaster was carefully constructed by the government”.

• For the past 13 years, the PT governments carefully dismantled every “right thing” that was put in place by the Real Plan and did none of the “right things” necessary to consolidate its salutary effects.
• The regulatory agencies set up by former President Fernando Henrique Cardoso (FHC) were almost immediately re-politicized by Lula starting in 2003.
• This was followed by the vote-buying scandal known as the mensalão whereby the administration purchased the votes in the Congress necessary to advance its agenda of power in perpetuity.
• When the lid was blown off the mensalão scandal, a new one using Petrobrás was created. It put Brazil’s largest company (and a national icon) on the edge of bankruptcy.
• Every rule of sound managerial governance was abandoned, first as Lula basked in the conquests of the Real Plan and later as Dilma ran the country as a one-woman show.
• Any semblance of financial prudence was thrown out the window as the government spent its way to disaster, rising inflation and declining investment.
• The needs of a private sector seeking to service the demands of 40 million new consumers that entered the economy as a result of the Real Plan were ignored while ambitious infrastructure projects were announced and went unfinished.
• When the electorate took to the streets to demand that something be done, the Legislature rushed to pass bills that had been on the books for years and then blithely turned its back on any further measures.
• The administration resorted to all manner of accounting “tricks” to mask the spending orgy that accompanied the plan to remain in power in perpetuity.
• To address the rising demand for the impeachment of Dilma Rousseff, the administration resorted to measures that both reduced government revenues and increased spending.
• As the Lava-Jato investigation and its sub-projects uncovered more and more corruption in the system, the administration reacted by trying to defang the Judiciary and protect its cronies. It accused the Judiciary of “standing in the way of progress” by sanctioning those that corrupted the system while in fact Lava-Jato was and is making progress possible by weeding out those who were “bleeding” the system of its resources.

In fact, that is the essence of Brazil’s crisis – the Brazilian economy has been bled of its resources for centuries and can no longer afford to allow the process to continue.

Analysis:

I have often observed in this blog and in my reports that the only thing Brazil needs for sustainable growth and development is good management. Everything the country needs for stable, sustainable growth was made available with a new constitution in 1988 and the Real Plan. The framework for good governance is there. It remains simply for those in power to “do the right things”.

The rules are there and it is sufficient to follow them. Over the past 13 years the PT abandoned its rhetoric of “reform” to engage in the very same practices that had impeded Brazil’s forward progress since colonial times. It joined the kleptocracy it claimed to oppose, and like most converts, was excessive in its zeal. It managed to “outkleptocrat” the traditional kleptocrats!

It’s not wrong to say that the institutions in Brazil are working. But as a local pundit stated in one of those ubiquitous end-of-year TV analyses, they are not necessarily working in the right direction. The Executive and Legislative Branches are indeed working but notto place Brazil on a trajectory of stable growth and development. Rather, they are working to try to sustain a status quo that can no longer exist if sustainable growth is the objective. The only institution working in that direction is the Judiciary that is ferreting out the more egregious kleptocrats and applying the law to them.

Each of the articles in today’s Estado de São Paulo offers sound recommendations for emerging from the current crisis. It remains only for those governing the country to apply the suggested remedies in the proper dosage.

That Brazil has the laws it needs is witnessed by 700 years of prison sentences to individuals who in earlier times would have walked away with impunity. The list of those serving time is composed of some of the country’s wealthiest and most influential business executives and politicians. The only thing that was needed for that to occur was a decision to enforcethe laws already on the books. The regulatory agencies created by FHC are still there. The private sector managerial class that rose up over the past few decades is still there. A modern agricultural sector continues to produce bumper crops of grains. Corporate governance has made enormous progress over the past 20 years.

In spite of gross mismanagement, the economy has yet to bottom out (and when I write “gross”, I mean really gross.)  There is no shortage of technical solutions proposed by qualified economists and analysts. All that is lacking is the acceptance of reality and the will to fix what is wrong. This requires leadership. Until it emerges, things will continue to worsen.

And, as Albert Einstein observed, you can’t solve a problem with the same mindset that created it.